Bribery: An act that was once common practice is now against the law

August 2, 2011

This article was written for Childreswear Buyer

It happens. Most of us have done it with our children. It’s no different in business. A few years ago I advised a UK company where it was alleged that one of its UK agents had sought more business leads by offering a monetary inducement to a director of my client.

Indeed, which principals have not wondered from time to time how a particular agent was able to win a certain order?

With the Bribery Act 2010 effective from 1 July 2011 wonderment must change to action. If it does not, those representing the so-called "top-level management" of a business (be it the board of directors, the owners or an equivalent body or person) all run the risk of committing an offence if they are found to:

have failed to prevent bribery by any party associated with the business anywhere in the world; and

not have adequate procedures in place designed to prevent acts of bribery.

Media comment to date has focussed primarily on employees. There has been barely any thought given to agents and none to distributors. But if your agent intended his bribe to obtain or retain business from a customer then an offence will have been committed.

A company which commits the offence faces unlimited fines. Individuals (for example, a sales director) who commits the offence face unlimited fines or ten years imprisonment (or both).

It’s nice inside

By most accounts, prison these days isn’t that bad. Well-heated accommodation. Regular meals. Recreational facilities. No grief from the mother-in-law...but remember, the offence is failing to prevent bribery and not having adequate procedures in place designed to prevent acts of bribery. This is quite distinct from the offence of bribery itself!

So what’s to be done?

The good news is that guidance for principals can be obtained free from the Ministry of Justice (www.justice.gov.uk). The guidance highlights the procedures which principals should introduce to prevent bribery occurring within their organisations, including by their agents.

The better news is that the guidance provides greater clarity than the draft guidelines issued by the Ministry of Justice in September 2010.

The even better news is that the guidance introduces a small degree of realism. For example, in principle, small payments made to facilitate routine actions by overseas government officials are bribes. The Act provides no exception. In contrast, the guidance acknowledges that there should be considered whether such payments are one-off, small or made by a party in a vulnerable position and, if they are, this may result in non-prosecution.

There has also been considerable media comment about corporate hospitality. The Government has made it clear that hospitality is "an important part of doing business and it is not the intention of the Act to criminalise such behaviour". The reason for this is that it is now recognised by the Government that improving a commercial organisation’s image or establishing good relations is important. Ultimately, the test is what a reasonable person would expect taking into account what is normal for the business sector in which the company operates. If it is proportionate to what is normal and there is no further evidence demonstrating that the hospitality was intended to have a direct impact on decision making, it is likely that an offence has not been committed.

Indeed, it was made clear by the guidance that the fact that one act of bribery has occurred does not itself mean that the procedures in place are "inadequate". Instead, it is recognised that the "actions of an agent or an employee may be wilfully contrary to very robust corporate contractual requirements, instructions or guidance".

But, bear in mind that even with this degree of realism:

there are no safe harbours;

the guidance does not have the force of law;

acts of bribery will result in prosecution whether they are committed in the UK or overseas by UK businesses (or by foreign companies which carry on any part of their business within the UK).

Adequate procedures

Six principles have been published by the Government which are intended to guide the procedures to be put in place by businesses in order to prevent bribery. The underlying theme is that businesses need to understand and respond to the risks which are particular to their businesses. Consequently, these may have practical consequences in the way in which businesses undertake due diligence in respect of their relationships with their parties such as agents and the transactions which are entered into, for example with distributors.

The six principles are:

Proportionate procedures"A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced".

Top-level commitment"The top-level management of a commercial organisation…….are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable".

Risk assessment"The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented".

Due diligence"The commercial organisation provides due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks".

Communication (including training)"The commercial organisation seeks to ensure that its bribery prevention policy and procedures are embedded throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces".

Monitoring and review"The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary".

The end point

Like any other area of the law, your business doesn’t have to comply. And who knows, you may get a visit from the mother-in-law…